What You’ll Learn

Section 5-1 Complete a savings account deposit

slip, and compute the total deposit.
Section 5-2 Fill out a savings account withdrawal slip.
Section 5-3 Compute the new balance on a savings
account statement.
Section 5-4 Calculate simple interest.
Section 5-5 Figure out the compound interest and
the amount.
Section 5-6 Find compound interest using tables.
Section 5-7 Find interest for daily compounding.
Section 5-8 Compute the future value of an
ordinary annuity and an annuity due.

When Will You Ever Use This?

Achieving your dreams will take hard work and
money. Although the hard work takes dedication,
so does saving money. To accomplish your future
goals, you’ve got to have money. Saving money is
a crucial step to living a financially free life.

Key Words to Know

• savings account • annual interest rate
• deposit • compound interest
• withdrawal • daily
• account statement compounding
• interest • annuity To learn more about
• simple interest • ordinary annuity savings accounts, visit
• principal • annuity due [Link].

194 䊴 Chapter 5 Savings Accounts

Understanding the
Williams Sisters

Jaydene Williams has offered to drive her

10-year-old sister, Aisha, to their State
Bank. Aisha is going to open her first
savings account today. To earn money,
she has been doing extra work around
the house—raking leaves and washing
windows. Read how this sibling twosome
tackles the process of starting a savings
account.
Read on. Go to . . .
Earning Money for Your Account . . .p. 196

Carrying Your Worth in a Shoebox . .p. 199

It Happens Four Times a Year . . . . .p. 202

Interest on Washing Windows . . . . .p. 205

Compounding Is Good for You . . . . .p. 208

The Work’s Done for You . . . . . . . . .p. 211

Growing Faster . . . . . . . . . . . . . . .p. 214

Get Proof . . . . . . . . . . . . . . . . . .p. 217

Assessment . . . . . . . . . . . . . . . . .p. 221

195
 Deposits
To open a savings account , which is a special bank account that earns interest,
you must make a deposit . A deposit is the money you give the bank to hold in
Complete a your savings account. Each time you make a deposit, it is added to your account’s
savings account balance. To do this you fill out a savings account deposit slip to record currency,
deposit slip, and coins, and checks that you are depositing. If you want to receive cash back,
compute the total subtract the amount from the subtotal to find the total deposit amount.
deposit. Total Deposit ⴝ (Currency ⴙ Coins ⴙ Checks) ⴚ Cash Received

Understanding the Williams Sisters

Earning Money for Your Account Jaydene has explained to

her sister that a savings account actually earns money for the
account owner. “The bank takes all the money people put into
it and invests it by making mortgage loans, car loans, buying
government securities, and loaning it to other banks. It earns
money for the bank, and the bank shares some of that extra
money with its customers.”
Draw Conclusions If you deposited $100 into a savings
account with 2.3 percent interest, what would be your total
balance at the end of the year?
Continued on page 199

Example 1
Gustavo Barrera has a check for $145.58 and a check for $47.51. He also has 14
Workshop 4: one-dollar bills. He would like to receive $20 in cash and deposit the rest of the
Adding Decimals, money in his savings account. What is the total deposit?
page 10 STEP: Compute the total deposit.
Workshop 5: (Currency ⴙ Coins ⴙ Checks) ⴚ Cash Received
Subtracting ($14.00
$145.58
$47.51)  $20.00 
Decimals, page 12 $207.09  $20.00  $187.09 total
deposit

CONCEPT CHECK

Complete the problems, then check your answers at the end of the chapter.
Find the total deposit.
1. ($160.00
$10.95
$114.35)  $25.00 
2. ($125.60
$180.00
$22.21)  $20.00 

196 䊴 Chapter 5 Savings Accounts

 Example 2
Robert Cassidy wants to deposit the following into his savings account:
28 one-dollar bills, 8 five-dollar bills, 24 quarters, 35 dimes, 90 pennies, a
check for $29.34, and a check for $124.19. He wants to receive a fifty-dollar
bill in cash. How much will he deposit?

Figure 5.1 SAVINGS DEPOSIT DOLLARS CENTS

CURRENCY 68 00

CASH
Date March 11, 20--
COINS 10 40
Account Number 0113014 LIST SEPARATELY
14-6 29 34

CHECKS
Currency
Coins
Checks 35-165 124 19

Name Robert Cassidy

SUBTOTAL 231 93
SIGN HERE IF CASH RECEIVED FROM DEPOSIT ➮ LESS CASH RECEIVED 50 00
Robert Cassidy TOTAL DEPOSIT 181 93

STEP: Compute the total deposit.

The currency deposit: $28
(8  $5) 
$28
$40  $68
The coins deposit: (24  $0.25)
(35  $0.10)
$0.90 
$6.00
$3.50
0.90  $10.40
$68.00
$10.40
$29.34
$124.19  $50.00  $181.93 total deposit

CONCEPT CHECK

Complete the problem, then check your answer at the end of the chapter. Find
the total deposit.
3. Checks: $152.54 and $147.46.
Cash: 54 one-dollar bills, 12 five-dollars, 6 ten-dollar bills, 35 quarters,
18 dimes, 40 nickels, and 75 pennies. Less a fifty-dollar bill as cash received.

SECTION 5-1 PRACTICE

Find the subtotal and total deposit.

4. Guadalupe Garcia wants to deposit $74.00 in cash and a check for $124.17.
5. Ernest McMahon deposits $73.23 in cash and $3.95 in coins.
6. Kenneth Hal deposits a check for $335.28, another check for $61.88, and
$90 in cash.
7. Zina Templeton deposits a check for $823.40, a check for $29.50, and $50
in cash.

Continued on next page

Section 5-1 Deposits 䊳 197

 Less Cash Total
Deposits Subtotal Received Deposit

8. $ 44.00 a. $ 0.00 b.
8.35
26.80
9. 76.00 a. 0.00 b.
9.27
44.38
10. 52.96 a. 30.00 b.
39.75
11. 180.81 a. 150.00 b.
115.35
12. 64.89 a. 20.00 b.
39.57
928.12

13. Joe Gryster deposited a check for $475.77 and another check for $94.26 in
his savings account. He received $70.00 in cash. What was his total deposit?
14. Ande Corbin completed a savings account deposit slip on which he recorded
checks for $327.19 and $52.88 for deposit. He received $38.00 in cash. What
was his total deposit?
15. Laura Martinez deposited 4 twenty-dollar bills, 9 ten-dollar bills, 35 quarters,
8 dimes, 97 pennies, and a check for $75.96 in her savings account. What was
her total deposit?
16. David Rodero operates a booth during special concert events. Following each
event he makes a deposit in his savings account. He has checks for $40, $50,
and $35. He has cash and coins consisting of 8 fifty-dollar bills, 12 twenty-
dollar bills, 12 ten-dollar bills, 8 five-dollar bills, 22 one-dollar bills, 48
quarters, 19 dimes, 22 nickels, and 52 pennies. He would like to receive a
hundred-dollar bill in cash. What is his total deposit?
17. Winona Gendron is a street vendor selling souvenirs in front of Comerica
Baseball Park. She deposits her sales income directly into a savings account.
Her deposit today consists of 5 one-hundred-dollar bills, 8 fifty-dollar bills,
25 twenty-dollar bills, 22 five-dollar bills, 8 two-dollar bills, 19 one-dollar
bills, 18 half-dollars, 42 quarters, 36 dimes, 28 nickels, and one check for
$40.00. What is the total deposit?

MAINTAINING YOUR SKILLS

Add.
Skill 5: Adding 18. $31.50 19. $40.46 20. $173.79 21. $551.16
Decimals, page 732
42.45
18.32
45.93
146.81
Skill 6: Subtracting
Decimals, page 733 Subtract.
22. $98.93 23. $692.57 24. $103.33 25. $687.28
 20.00  35.40  60.00  75.00

198 䊴 Chapter 5 Savings Accounts

 Withdrawals
To withdraw is to take away. So when you fill out a withdrawal slip, you’re
taking money out of your bank account. Your withdrawal is subtracted from the
Fill out a account’s balance. When making a withdrawal from a savings account, you need to
savings account be able to write dollar amounts in word form, with the decimal portion expressed
withdrawal slip. as a fraction. (You learned the same process in Chapter 4 Checking Accounts.)

Understanding the Williams Sisters

Carrying Your Worth in a Shoebox Pennies rattle in the shoe

box Aisha is carrying. “OK, so how do I deposit all my money?”
Aisha asks as she and her sister enter the bank.
“Well, first,” Jaydene says, “we’ll have to open a savings
account for you and deposit your money into it. Then you
can take money out when you need it. That’s called making
a withdrawal.”
“Do I just go up to the window and ask for my money when
I want it back?”
“Well sort of,” Jaydene says, “but first you have to fill out
a piece of paper called a withdrawal slip.”
Draw Conclusions Where else can you find a withdrawal slip
other than at the lobby of the bank?
Continued on page 202

Example 1
a. Write $45.00 in word form.
Workshop 1: b. Write $355 in word form.
Writing and
50
Reading Numbers, c. Write twenty-five and 100 dollars as a numeral.
page 4
STEP: Write the amounts in word form or as numerals.
00
a. $45.00 in word form is forty-five and 100 dollars.
00
b. $355.00 in word form is three hundred fifty-five and 100 dollars.
50
c. Twenty-five and 100 dollars as a numeral is $25.50.

CONCEPT CHECK

Complete the problems, then check your answers at the end of the chapter.
Write each of the following in word form or as a numeral.
1. $60.00 2. $280.50
75
3. Ninety-eight and 100 dollars 4. Six thousand five hundred eighty-
95
six and 100 dollars

S e c t i o n 5 - 2 Withdrawals 䊳 199
 Example 2
Dalton Rhodes would like to withdraw $45 from his savings account. His
account number is 0113014. How should he fill out the withdrawal slip? (Note:
In order to prevent someone from altering your check, you always start writing
out the amount to the left.)

State Bank Savings Withdrawal

Figure 5.2
DATE ACCOUNT NUMBER AMOUNT
November 14, 20-- 0113014 $45.00

NOT NEGOTIABLE—TO BE USED ONLY AT COUNTER OF THIS BANK BY DEPOSITOR PERSONALLY

00
Forty-five and 100
— DOLLARS

NAME (SIGNATURE)
Dalton Rhodes
ADDRESS
18 Laurel Lane, Bridgetown, CT 05120

STEP 1: Write the date of withdrawal.

STEP 2: Write the savings account number.
STEP 3: Write the amount withdrawn in words with cents expressed as a
fraction of a dollar. (Note that you start at the far left.)
STEP 4: Write the amount withdrawn as a numeral.
STEP 5: Did he sign the withdrawal slip?

CONCEPT CHECK

Complete the problem, then check your answer at the end of the chapter.
5. Tyrone Shumpert would like to withdraw $150 from his savings account. Use
the withdrawal slip to answer the following:

University Bank Savings Withdrawal

Figure 5.3
DATE ACCOUNT NUMBER AMOUNT
January 10, 20-- 559821 $150.00

NOT NEGOTIABLE—TO BE USED ONLY AT COUNTER OF THIS BANK BY DEPOSITOR PERSONALLY

00
One hundred fifty and 100
— DOLLARS

NAME (SIGNATURE)
Tyrone Shumpert
ADDRESS
5532 Hilltop Court, Lake Havasu City, AZ 86403

a. What is the date of withdrawal?

b. What is the savings account number?
c. Is the amount withdrawn correctly written in word form?
d. Who signed the withdrawal slip?

200 䊴 Chapter 5 Savings Accounts

 SECTION 5-2 PRACTICE

Write each amount in word form, as it would appear on a withdrawal slip.

Make sure you ask 6. $25.00 7. $150.00 8. $44.93

how many free
withdrawals the 9. $68.74 10. $406.00 11. $137.51
bank allows each
Write each as a numeral.
month. If you
withdraw more 00
12. Thirty-five and 100 dollars
than the limit, you
may be charged 25
13. Nine hundred thirty-two and 100 dollars
$5.00 or more per 10
withdrawal. 14. Seventy-four and 100 dollars
00
15. Seven thousand five hundred eighty-five and 100 dollars
For Problems 16 to 20 write (a) the account number, (b) the amount as a
numeral, and (c) the amount in words.
16. Avis Bogart’s savings account number is 81-0-174927. He fills out a savings
withdrawal slip for $318.29 to purchase a gift.
17. Nina Cantu has been saving for a trip abroad. Her travel agent has arranged
a trip to Europe that will cost $2,460. Cantu withdraws the amount from her
savings account. Her account number is 13-122-541.
18. Damone Bashier has been saving to buy a commemorative stamp for his
stamp collection. He fills out the savings withdrawal slip shown for $76.70.
His account number is 06-029-175.
19. Farmer’s Mercantile 20. Farmer’s Mercantile
Date Savings Acct. No. Date Savings Acct. No.
5/19/20-- 17594179 $831.95 1/12/20-- 16010368 $374.28
Pay to Myself or to Home Finance Co. Pay to Myself or to Odessa French
Dollars Dollars
And Charge to the above Numbered Account And Charge to the above Numbered Account
Sign Here Calvin Gordon Sign Here Odessa French
Withdrawal Withdrawal

MAINTAINING YOUR SKILLS

Write in words with cents expressed as a fraction of a dollar.

Skill 1: Numbers, 21. $94.78 22. $219.34
page 727
23. $162.05 24. $15.71
Write as a numeral.
41
25. Thirty-nine and 100 dollars
27
26. Two hundred fifty-one and 100 dollars
22
27. Six thousand three hundred forty and 100 dollars
29
28. Twenty-five thousand six hundred ninety-six and 100 dollars

S e c t i o n 5 - 2 Withdrawals 䊳 201
 Account Statements
When you have a savings account, your bank may mail you a monthly or
quarterly account statement . The account statement shows all deposits,
Compute the new withdrawals, and interest credited to your account.
balance on a New Balance ⴝ Previous Balance ⴙ Interest ⴙ Deposits ⴚ Withdrawals
savings account
statement.

Understanding the Williams Sisters

It Happens Four Times a Year “How do I know the bank

is really putting my money into my account?” Aisha asks,
narrowing her eyes.
“They will give you a copy of the deposit slip,” Jaydene says,
“and then every three months, they’ll send you an account
statement. You check it against the records you’ve been keeping
to see if they are the same. The statement will show everything
that’s happened in your account since the last statement—
deposits, withdrawals, and your interest.”
Draw Conclusions Why is it important to reconcile your
savings account?
Continued on page 205

Example 1
Your savings account statement shows a previous balance of $1,258.22 and
Workshop 4: $2.10 in interest. You made deposits of $210.00, $50.00, and $40.00. You had
Adding Decimals, withdrawals of $50.00 and $75.00. What is your new balance?
page 10 STEP: Compute the new balance.
Workshop 5: Previous Balance ⴙ Interest ⴙ Deposits ⴚ Withdrawals
Subtracting $1,258.22
$2.10
($210
$50
$40)  ($50
$75)
Decimals, page 12  $1,258.22
$2.10
$300  $125
 $1,435.32 new balance

CONCEPT CHECK

Complete the problems, then check your answers at the end of the chapter.

Previous New
ⴙ Interest ⴙ Deposits ⴚ Withdrawals ⴝ
Balance Balance

1. $ 998.50
$1.25
$ 80  $100 

2. 1,589.33
2.67
750  440 

202 䊴 Chapter 5 Savings Accounts

 Example 2
Christine Yamaguchi receives her savings account statement quarterly. After
checking her passbook and transactions to be sure all items have been recorded
correctly, she checks the calculations. What is the balance in her account on July 1?

Figure 5.4 Savings Account Statement

Name Beginning Date 4/01/20--
Christine Yamaguchi Ending Date 7/01/20--
Account Number 5891235 Interest Earned This Period 4.11
Date Withdrawal Deposit Interest Balance
4/01 274.50
4/15 250.00 524.50
5/11 125.00 649.50
6/10 100.00 549.50
7/01 4.11 553.61
7/01 80.00 633.61

STEP: Find the new balance.

Previous Balance ⴙ Interest ⴙ Deposits ⴚ Withdrawals
$274.50
$4.11
($250
$125
$80)  $100.00
 $633.61 new balance

274.5 4.11 250 125 80 100 633.61

CONCEPT CHECK

Complete the problem, then check your answer at the end of the chapter.
3. Previous balance, $700; interest, $1.50; deposits of $100.00 and $250.00;
withdrawals of $80.00 and $110.00. What is the new balance?

SECTION 5-3 PRACTICE

Previous New
ⴙ Interest ⴙ Deposits ⴚ Withdrawals ⴝ
Balance Balance

4. $ 400.00
$1.90
$ 50.00  $150.00 

5. 485.00
1.95
125.00  200.00 
6. 674.00
1.22
160.00  190.00 
7. 7,381.19
9.64
231.43  180.00 

8. Judi Imhoff ’s previous balance is $717.52. Imhoff receives $4.36 in interest,

$125.00 and $276.95 in deposits, and $90.00 in withdrawals. What is her
new balance?

Continued on next page

S e c t i o n 5 - 3 Account State me nts 䊳 203

 9. Darrick Taylor’s previous balance is $2,161.41. On his bank statement there
is a record of $20.04 in interest, deposits of $345.00 and $575.80, and
withdrawals of $210.00 and $945.00. What is his new balance?
10. Sara Averett’s previous balance is $74,561.49, with $1,017.98 in interest,
deposits of $918.37 and $944.56, and withdrawals of $959.40 and $14,391.47.
What is her new balance?
11. Kevin Elliott received his savings account statement. Fill in the missing
information on Elliott’s statement.

Figure 5.5 Savings Account Statement

Name Beginning Date 1/15/20--

Kevin Elliott Ending Date 7/15/20--

Account Number 12-36-5000 Interest Earned This Period f.

Date Withdrawal Deposit Interest Balance

01/15 $503.27

01/28 $ 45.00 548.27

02/03 80.40 628.67

02/15 $2.85 631.52

03/15 2.86 634.38

04/10 $400.00 234.38

04/15 2.37 a.

05/01 335.60 b.

05/15 2.28 c.

06/15 2.61 d.

07/15 2.62 e.

MAINTAINING YOUR SKILLS

Add.
Skill 5: Adding 12. $450.00
$9.50
$40.00 13. $385.00
$7.52
$875.00
Decimals, page 732
Skill 6: Subtracting 14. $793.60
$2.38
$5.00 15. $426.30
$278.41
$342.91
Decimals, page 733
Subtract.
16. $7,942.70  $3,453.80 17. $16,865.95  $14,991.39
18. $338.49  $299.39 19. $41,215.24  $11,645.91

204 䊴 Chapter 5 Savings Accounts

 Simple Interest
When you deposit money into a savings account, you are permitting the bank
to use the money. The bank pays you interest , or a rental fee for letting them
Calculate simple use your money. The most common method of calculating interest is the simple
interest. interest formula. This is the interest paid on the original principal , the amount
of money earning interest. Simple interest is based on three factors: the principal,
the interest rate, and the amount of time for which the principal is borrowed.
To figure out how much interest your money will earn in the first year,
multiply the principal by the annual interest rate , the percent of the principal
that you earn as interest based on one year.
To compute use this formula:
Interest ⴝ Principal ⴛ Rate ⴛ Time
(Important Note: In this formula, rate is expressed as a decimal, fraction,
or percent; time is expressed in years or a fraction of a year.)

Understanding the Williams Sisters

Interest on Washing Windows Aisha hears her older sister

mention the word “interest” when she talks about savings
accounts. “You know I’m interested in starting a savings
account,” Aisha says.
Jaydene laughs, “I’m talking about interest on your money.
The money you put in your account is called ‘the principal.’ The
‘interest’ is a little extra money the bank gives you for keeping
your money in their bank.”
Draw Conclusions What is your definition of interest?
Continued on page 208

Example 1
Joyce Tyler deposits $900 in a savings account at Hamler State Bank. The
Workshop 6: account pays an annual interest rate of 5 12 percent. She makes no other deposits
Multiplying or withdrawals. After three months, the interest is calculated. How much
Decimals, page 14 simple interest does her money earn?
Workshop 13: STEP: Find the interest at 5 12 percent.
Fraction to Principal ⴛ Rate ⴛ Time
Decimal, Decimal $900.00  5 12 %  12 3
to Percent, page 28
$900.00  0.055  0.25  $12.375 or $12.38 interest
900 5.5 49.5 3 12 12.375 or
900 0.055 0.25 12.375

S e c t i o n 5 - 4 Simple Interest 䊳 205

 CONCEPT CHECK

Complete the problems, then check your answers at the end of the chapter.
1. Principal: $400 2. Principal: $1,500
Annual interest rate: 6 percent Annual interest rate: 2.5 percent
What is the interest after 3 months? What is the interest after 6 months?

Example 2
Lena Green’s bank computes 4 percent interest on a daily basis. She has $1,000
in the account for 10 days. She makes a deposit of $600 and it is in the account
for 15 days. She withdraws $400 and the balance earns interest for 6 days. How
much interest does she earn? What is the amount in the account at the end of
the month?
STEP: Find the interest at 4 percent for each set of days.
Principal ⴛ Rate ⴛ Time
(Note: Remember that the time has to be a fraction of a year, so
divide the number of days by 365.)
10
$1,000  4%  365  $1.0958 $ 1.10
15
($1,000
$600)  4%  365  $2.630  2.63
6
($1,600  $400)  4%  365  $0.789  0.79
Total interest for the month $ 4.52
The amount in the account is ($1,200 ⴙ $4.52) ⴝ $1,204.52

CONCEPT CHECK

Complete the problems, then check your answers at the end of the chapter.
3. Some banks calculate the interest on a daily basis. The daily interest is added
to the account at the end of the month. Complete the following interest
calculations:

Principal ⴛ Rate ⴛ Time ⴝ Interest

12
a. $2,000  0.03  —
365 
8
b. 3,000  0.03  —
365 
5
c. 2,500  0.03  —
365 
6
d. 2,000  0.03  —
365 
e. Total interest 
f. Total amount in the account 

4. On May 1 Geraldo Saldana opened a savings account that paid 3.5 percent
interest at Fulton Savings Bank with a deposit of $3,600. Ten days later he
deposited $3,000. Fourteen days later he deposited $5,000. No other deposits
or withdrawals were made. Six days later the bank calculated the daily interest.
a. How much simple interest did his money earn?
b. How much was in the account at the end of the 30 days?

206 䊴 Chapter 5 Savings Accounts

 SECTION 5-4 PRACTICE

Annual
Principal ⴛ Rate ⴝ ⴛ Time ⴝ Interest
Interest

5. $ 720.00  0.06  a.  –3
12  b.
6. 960.00  0.02  a.  –1
12  b.
7. 327.00  0.04  a.  –6
12  b.
12
8. 4,842.00  0.05  a.  —
365  b.
8
9. 3,945.37  0.065  a.  —
365  b.

Principal ⴛ Rate ⴛ Time ⴝ Interest

15
10. a. $5,000  0.02  —
365 
5
b. 4,000  0.02  —
365 
5
c. 1,000  0.02  —
365 
5
d. 1,500  0.02  —
365 
e. Total interest 
f. Total amount in the account 

11. Tyee LaFleure deposited $760. No other deposits or withdrawals were

made. After 3 months the interest was computed at an annual interest
rate of 5 percent. How much simple interest did his money earn?
12. Malicia Dukes-Miller deposited $2,430. She made no other deposits or
withdrawals. After 1 month the interest was computed at an annual rate
of 6 percent. How much simple interest did her money earn?
13. Vernon Taber deposited his $2,000 scholarship money in a savings account
at State Home Savings Bank on June 1. At the end of 2 months, interest was
computed at an annual interest rate of 6 percent. How much simple interest
did his money earn?
14. On March 1 Tessa Obee deposited her IRS refund check for $9,364.85 in a
savings account at State Bank. The account pays 4 percent interest calculated
on a daily basis. Five days later on March 6 she withdrew $1,000.00. On
March 18, 12 days later, she withdrew $2,000.00. On March 28, 10 days later,
she withdrew another $2,000.00. Three days later on March 31 interest was
computed. How much simple interest did her money earn?

MAINTAINING YOUR SKILLS

Change the fractions and mixed numbers to decimals.

Skill 14: Changing 1 3 1
15. 2 16. 4 17. 4
Fractions/Decimals,
1 1 3
page 741 18. 5 2 19. 6 4 20. 7 4
Skill 28: Writing
Write the percents as decimals.
Percents as
1 1 1
Decimals, page 755 21. 5 2 % 22. 6 4 % 23. 9 2 %
3 5 3
24. 7 4 % 25. 10 8 % 26. 5 8 %

S e c t i o n 5 - 4 Simple Interest 䊳 207

 Compound Interest
Interest that you earn in a savings account during an interest period is added
to your account. Your new balance is used to calculate the interest for the next
Figure out the interest period and the next interest period and so on.
compound interest Compound interest is interest earned not only on the original principal, but
and the amount. also on the interest earned during previous interest periods. Think of compound
interest as having a snowball effect—a little snowball starts at the top of
a big hill and as it rolls down, it keeps picking up more snow, making it bigger and
bigger. The first step to figure out compound interest is to use this formula:
Amount ⴝ Principal ⴙ Interest
The amount is the balance in the account at the end of an interest period.
Once you have the amount, then you do a series of simple interest computations.
To find the compound interest, you find the difference between the amount in
the account and the original principal. The formula looks like this:
Compound Interest ⴝ Amount ⴚ Original Principal

Understanding the Williams Sisters

Compounding Is Good for You Mr. Gleason, a bank teller,

smiles when Aisha tells him she wants to open a savings
account. She requests a passbook, but he tells her that most
banks no longer issue them. Instead most have gone to the
monthly account statement. Deposits, withdrawals, and interest
are tracked there.
Draw Conclusions Give an example of compound interest.
How does it work for you?
Continued on page 211

Example 1
Skill 14: Changing
Jamal Quillet deposited $1,800 in a savings account, which earns 6 percent
Fractions/Decimals,
interest that is compounded quarterly. He made no deposits or withdrawals.
page 741
What was the amount in the account at the end of the second quarter?
Skill 28: Writing
Percents as STEP: Find the amount for each quarter.
Decimals, page 755
Skill 30: Finding First Quarter
the Percentage, Principal ⴛ Rate ⴛ Time ⴝ Interest
page 757
$1,800.00  6%  –14  $27.00
Application K:
Principal ⴙ Interest ⴝ Amount
Chronological
Expressions, $1,800.00
$27.00  $1,827.00
page 766

208 䊴 Chapter 5 Savings Accounts

 Second Quarter

Principal ⴛ Rate ⴛ Time ⴝ Interest

$1,827.00  6%  –14  $27.41
Principal ⴙ Interest ⴝ Amount
$1,827.00
$27.41  $1,854.41

1800 6 108 .25 27

1800 1827 6 109.62 .25
27.405 1827 1854.405

CONCEPT CHECK

Complete the problem, then check your answer at the end of the chapter.
1. Two thousand dollars is deposited at 8 percent compounded semiannually.
Find the amount in the account after 1 year.

Example 2
In Example 1 Jamal Quillet deposited $1,800 in a savings account that earns
6 percent interest compounded quarterly. You determined that the amount
in his account at the end of the second quarter was $1,854.41. What is the
compound interest?
STEP: Figure out the compound interest.
Amount ⴚ Original Principal
$1,854.41  $1,800.00  $54.41 compound interest

CONCEPT CHECK

Complete the problem, then check your answer at the end of the chapter.
2. How much did the account in Self-Check Problem 1 earn in compound
interest?

SECTION 5-5 PRACTICE

Annual First Second

Interest
Principal Interest Period Amount Period Amount
Period
Rate Interest Interest

3. $ 900.00 6% quarterly $13.50 $913.50 a. b.

4. 400.00 6% monthly 2.00 402.00 a. b.
1
5. 2,360.00 4–%
2 semiannually 53.10 a. b. c.
1
6. 18,260.00 2–%
2 quarterly a. b. c. d.
7. 27,721.00 9.513% annually a. b. c. d.

Continued on next page

S e c t i o n 5 - 5 Compound Interest 䊳 209

 8. Alicia Martin’s savings account has a principal of $1,200. It earns 6 percent
interest compounded quarterly.
a. What is the amount in the account at the end of the second quarter?
b. How much is the compound interest?
9. Angelo Larragu’s savings account has a principal of $800. It earns 6 percent
interest compounded quarterly.
a. What is the amount in the account at the end of the second quarter?
b. How much is the compound interest?
10. Manny Simpson deposited $860 in a new regular savings account that earns
5.5 percent interest compounded semiannually. He made no other deposits
or withdrawals. What was the amount in the account at the end of 1 year?
11. Jana Dejute deposited $4,860 in a new credit union savings account on the
first of the quarter. The principal earns 4 percent interest compounded
quarterly. She made no other deposits or withdrawals. What was the amount
in her account at the end of 6 months?
12. Betty and Sam Sim’s savings account had a balance of $9,544 on May 1. The
account earns interest at a rate of 5.25 percent compounded monthly.
a. What is the amount in their account at the end of August if no deposits
or withdrawals were made during the period?
b. How much is the compound interest?
13. Ernie Boddy had $3,620 on deposit at Savings Bank on July 1. The money
earns interest at a rate of 6.5 percent compounded quarterly.
a. What is the amount in the account on April 1 of the following year if
no deposits or withdrawals were made?
b. How much is the compound interest?
14. The Vassillis opened a savings account with a deposit of $2,000 on January 1.
The account pays interest at 6 percent compounded semiannually. On July 1
they deposited another $2,000.
a. What amount will they have in their account on July 1?
b. What will they have in the account on January first one year later?
c. How much is the compound interest?

MAINTAINING YOUR SKILLS

Write the percents as decimals.

Skill 28: Writing 1 1 3
15. 5 4 % 16. 8 2 % 17. 5 4 %
Percents as
Decimals, page 755 Find the percentage.
Skill 30: Finding 1
18. $950  8% 19. $760  6 2 % 20. $3,620  9%
the Percentage,
page 757 Write the fractions as decimals. Round answers to the nearest hundredth.
Skill 14: Changing 3 4 5
21. 10 22. 12 23. 8
Fractions/Decimals,
page 741

210 䊴 Chapter 5 Savings Accounts

 Compound Interest
Tables
Find compound To compute compound interest quickly, you can use a compound interest table,
interest using which shows the amount of $1.00 for many interest rates and interest periods. To
tables. use the table you must know the total number of interest periods and the interest
rate per period. Throughout this chapter, you’ll use these formulas:
Amount ⴝ Original Principal ⴛ Amount of $1.00
Compound Interest ⴝ Amount ⴚ Original Principal

Understanding the Williams Sisters

The Work’s Done for You Figuring compound interest seems

complicated to Aisha, but Mr. Gleason tells her that if you know
the number of interest periods and the interest rate per period,
you can use a table to figure out the amount of compound
interest your money has earned.
Draw Conclusions In your own words, how do you read a chart
in order to find the information you need?
Continued on page 214

Example 1
State Bank pays 6 percent interest compounded quarterly on regular savings
Workshop 7: accounts. Marta Carmona deposited $3,000 for 2 years. She made no other
Dividing Decimals, deposits or withdrawals. How much interest did Carmona earn during the
page 16 2 years? (Note: Use the Compound Interest—Amount of $1.00 table on page
Workshop 6: 797 to solve this problem.)
Multiplying STEP 1: Find the total interest periods.
Decimals, page 14 Periods per Year ⴛ Number of Years
Application C: 4 quarters per year  2 years 8
Tables and Charts, STEP 2: Find the interest rate per period.
page 762 Annual Rate
Number of Periods per Year
6%
4  1.5%
STEP 3: Find the amount of $1.00 for 8 periods at 1.5 percent per period
using the Compound Interest—Amount of $1.00 table on page 797.
 1.12649
STEP 4: Find the amount.
Original Principal ⴛ Amount of $1.00
$3,000.00  1.12649  $3,379.47
Continued on next page
S e c t i o n 5 - 6 Compound Interest Tables 䊳 211
 STEP 5: Find the compound interest.
Amount ⴚ Original Principal
$3,379.47  $3,000  $379.47 compound interest

CONCEPT CHECK

Complete the problems, then check your answers at the end of the chapter.
1. Two thousand dollars is invested at 5.5 percent interest compounded
quarterly for 2 years. Find the amount.
2. Four thousand five hundred dollars is invested at 3 percent interest
compounded semiannually for 2 years. Find the amount.

Example 2
Juan Lopez opens an account and deposits $4,379.47. The account pays 6
percent annual interest and compounds quarterly. Six months later he deposits
$2,000. How much will he have in the account 112 years later if it continues to
pay 6 percent interest compounded quarterly?
STEP 1: Find the total interest periods for first 6 months.
Periods per Year ⴛ Number of Years
1
4 quarters per year  2 year  2 interest periods
STEP 2: Find the interest rate per period.
Annual Rate
Number of Periods per Year
6%
4  1.5%
STEP 3: Find the amount of $1.00 for 2 periods at 1.5 percent per period
using the Compound Interest—Amount of $1.00 table on page 797.
 1.03023
STEP 4: Find the amount for 6 months.
Original Principal ⴛ Amount of $1.00
$4,379.47  1.03023  $4,511.86 (new principal)
STEP 5: Find the amount for 1.5 years.
Periods per Year ⴛ Number of Years
4 quarters per year  1.5 years  6 interest periods
STEP 6: Find the amount of $1.00 for 6 periods at 1.5 percent per period
using the Compound Interest—Amount of $1.00 table on page 797.
 1.09344
STEP 7: Find the amount for 1.5 years.
New Principal ⴛ Amount of $1.00
($4,511.86
$2,000.00)  1.09344 
$6,511.86  1.09344  $7,120.33 in the
account

CONCEPT CHECK

Complete the problem, then check your answer at the end of the chapter.
3. You invested $2,000 at 5.5 percent interest compounded quarterly for 1 year.
You added $4,000 to the account at the end of 1 year. How much is in the
account at the end of 2 more years?
212 䊴 Chapter 5 Savings Accounts
 SECTION 5-6 PRACTICE

Use Compound Interest—Amount of $1.00 table on page 797 to solve Problems

4 to 8. Round answers to the nearest cent.
Annual Interest Total Compound
Principal Interest Periods Amount
Time Interest
Rate per Year

4. $ 900.00 5.50% 4 2 years a. b.

5. 640.00 6.00% 2 1 year a. b.
6. 1,340.00 5.00% 4 3 years a. b.
7. 6,231.40 5.75% 2 5 years a. b.
8. 3,871.67 4.00% 4 10 years a. b.

9. State Bank pays 5.5 percent interest compounded semiannually on regular

savings accounts. Iva Howe deposited $2,800 in a regular savings account for
2 years. She made no other deposits or withdrawals during the period. How
much interest did her money earn?
10. Currito Zermeno deposited $900 in a savings plan with her credit union.
The credit union savings plan pays 6 percent interest compounded quarterly.
If she makes no other deposits or withdrawals, how much interest will
her money earn in 1 year?
11. National Credit Union pays 6.25 percent interest compounded semiannually
on special notice savings accounts. Jessie McKenzie deposits $3,438.70 in a
special notice savings account for 2 years. At the end of 2 years, she deposits
$5,000 in the account. How much is in the account at the end of 5 more years?
12. University Bank pays 5 percent interest compounded quarterly on regular
savings accounts. Rose and Bob Yung had $4,000 on deposit for 1 year. At the
end of the year, they withdrew all their money and deposited $4,000 at National
Bank, which pays 5.75 percent compounded semiannually. How much more did
the $4,000 earn at National Bank for 1 year?
13. Nathan Murphy opened a savings account at Savings and Loan on
January 1 with a deposit of $800. Savings and Loan pays 6 percent interest
compounded quarterly. What will the $800 be worth on January 1 of the
following year? How much interest will the $800 have earned by January 1
of the following year?
14. Wilma Bracken opened a savings account at Dallas Trust Bank on March 1.
Dallas Trust pays 4 percent interest compounded quarterly. Bracken opened
her account with an initial deposit of $10,000. She made $1,000 deposits at
the end of each quarter. How much is in the account at the end of 6 quarters?

MAINTAINING YOUR SKILLS

Convert the percent to a decimal and then divide.

Skill 11: Dividing 15. 8%  4 16. 4%  4 17. 6%  12
Decimals, page 738
18. 7%  4 19. 8.5%  2 20. 3.5%  4

S e c t i o n 5 - 6 Compound Interest Tables 䊳 213

 Daily Compounding
Usually the more frequently interest is compounded, the more interest you will
earn. Many banks offer savings accounts with daily compounding . When interest
Find interest is compounded daily, it is computed each day and added to the account balance.
for daily The account will earn interest from the day of deposit to the day of withdrawal.
compounding. A table can be used to calculate the amount and interest for daily compounding.
Remember these formulas from previous sections:
Amount ⴝ Original Principal ⴛ Amount of $1.00
Compound Interest ⴝ Amount ⴚ Original Principal

Understanding the Williams Sisters

Growing Faster “The more often the bank adds interest to

your account and recalculates the compound interest, the
faster your account will grow,” Mr. Gleason says. “If the bank
compounds daily, you will earn interest on your interest almost
immediately.”
Draw Conclusions What are the benefits of compound interest
over simple interest?
Workshop 6:
Multiplying Continued on page 217
Decimals, page 14
Workshop 17:
Elapsed Time,
page 36
Skill 8: Multiplying Example 1
Decimals, page 735 Suppose you deposit $8,000 in an account that pays 5.5 percent interest
Application G: compounded daily. How much interest will you earn in 31 days?
Elapsed Time
STEP 1: Find the amount of $1.00 for 31 days using Figure 5.6.
(Days), page 765
 1.00468

Figure 5.6 Amount of $1.00 at 5.5% Compounded Daily (365-Day Year)*

Day Amount Day Amount

21 1.00316 31 1.00468
22 1.00331 32 1.00483
23 1.00347 33 1.00498
24 1.00362 34 1.00513
25 1.00377 35 1.00528
*See the table on page 796 for more values.

214 䊴 Chapter 5 Savings Accounts

 STEP 2: Find the amount.
Original Principal ⴛ Amount of $1.00
$8,000.00  1.00468  $8,037.44
STEP 3: Find the compound interest.
Amount ⴚ Original Principal
$8,037.44  $8,000.00  $37.44 compound interest

CONCEPT CHECK

Complete the problems, then check your answers at the end of the chapter.
1. Six thousand dollars deposited at 5.5 percent interest compounded daily for
25 days.
a. Find the amount.
b. Find the compound interest.
2. Six thousand dollars deposited at 5.5 percent interest compounded daily for
31 days.
a. Find the amount.
b. Find the compound interest.

Example 2
On May 31 Deloris Zelms deposited $1,000 in a savings account that pays
Workshop 17: 5.5 percent interest compounded daily. On July 1 how much interest had been
Elapsed Time, earned on the principal in her account?
page 36 STEP 1: Find the number of days from May 31 to July 1. Use the Elapsed
Time table on page 796.
July 1 is day 182. May 31 is day 151.
182  151  31 days
STEP 2: Find the amount of $1.00 for 31 days using the Amount of $1.00 at
5.5 Percent, Compounded Daily (365-Day Year) table on page 796.
 1.00468
STEP 3: Find the amount.
Original Principal ⴛ Amount of $1.00
$1,000.00  1.00468  $1,004.68
STEP 4: Find the compound interest.
Amount ⴚ Original Principal
$1,004.68  $1,000.00  $4.68 compound interest

CONCEPT CHECK

Complete the problem, then check your answer at the end of the chapter.
3. On February 1 (in a non-leap year) Raul Avila deposited $10,000 in a savings
account that pays 5.5 percent interest compounded daily. On June 21 how
much interest had been earned on the principal in the account?

S e c t i o n 5 - 7 D aily Compounding 䊳 215

 SECTION 5-7 PRACTICE

Use the Amount of $1.00 at 5.5 Percent, Compounded Daily (365-Day Year)
table on page 796 to solve. Round answers to the nearest cent. Interest is 5.5
percent compounded daily.

Number Compound
Principal Amount
of Days Interest

4. $80,000 25 a. b.

5. 900 31 a. b.

6. 6,500 50 a. b.

7. 3,800 90 a. b.

8. 15,321 120 a. b.

9. On June 10 Bertha Polanski deposited $8,241.78 in a savings account that

pays 5.5 percent interest compounded daily. How much interest will the
money earn in 31 days?
10. Oprah Egland has a savings account that earns 5.5 percent interest
compounded daily. On May 5 the amount in the account was $28,214.35.
How much interest will the money earn in 90 days?
11. On April 11 Ramona Jimerson had $6,521.37 in his savings account. The
account pays 5.5 percent interest compounded daily. How much interest will
the money earn by June 30?
12. On August 23 Diego Quiroz had $1,432.19 in his savings account at Camden
Savings and Trust. The account earns 5.5 percent interest compounded daily.
What will be the amount in his savings account when he closes it on October 1?
13. Debra Goforth’s savings account shows a balance of $904.31 on March 1.
The same day, she made a deposit of $375.00 to the account. She also made
deposits of $500.00 on April 1 and May 1. The bank pays interest at a rate
of 5.5 percent compounded daily. What will be the amount in her account
on May 29?

MAINTAINING YOUR SKILLS

Multiply and round to the nearest hundredth.

Skill 2: Rounding 14. $4,000  1.02131 15. $9,000  1.00135
Numbers, page 729
Skill 8: Multiplying 16. $550  1.00907 17. $1,437  1.00392
Decimals, page 735
18. $950  1.00392 19. $1,416  1.01059
20. $7,370  1.00347 21. $41,520  1.00407
22. $94  1.00196 23. $389  1.00301
24. $7,925.14  1.01670 25. $327.78  1.00015

216 䊴 Chapter 5 Savings Accounts

 Annuities
Financial advisors recommend that their clients make regular deposits in a
savings plan, such as an Individual Retirement Account (IRA). When an equal
Compute the amount of money is deposited into an account at equal periods of time, this is
future value of an called an annuity . There are two categories of annuities:
ordinary annuity 1. Ordinary annuity occurs when equal deposits are made at the end of each
and an annuity interest period (such as salaries).
due. 2. Annuity due occurs when you have regular deposits at the beginning of the
period (such as rent). The money immediately starts earning interest because
it is deposited at the beginning of the interest period.
So how do you calculate the interest on a series of equal payments over
regular intervals of time? Easy. Both annuity groups use the future value. This is
the amount of money in the annuity account at the end of a specific period of
time. To find the future value of an ordinary annuity, follow the steps in Example
1 below. (Throughout this section you might also refer to the expanded Future
Value of an Ordinary Annuity for $1.00 per Period table on page 798.) For now
familiarize yourself with the formula:
Future Value ⴝ Amount of Deposit ⴛ Future Value of $1.00
Future Value of Future Value of an
an Annuity Due ⴝ Ordinary Annuity ⴛ ($1.00 ⴙ Rate per Period)

Understanding the Williams Sisters

Get Proof “When you’re done opening your account,” Jaydene

says to Aisha, “I’d like to start an annuity account. I received a
raise at work. I want to make sure I make regular deposits into
my annuity account.”
Draw Conclusions How often can you add deposits to your
annuity account?
Continued on page 221

Example 1
Aiko Murakami deposits $500 in an ordinary annuity at the end of each
Workshop 18:
quarter in an account earning 6 percent interest compounded quarterly. What
Reading Tables and
is the future value of the account in 2 years?
Charts, page 38
STEP 1: Find the total number of periods.
Workshop 6:
Multiplying Periods per Year ⴛ Number of Years
Decimals, page 14 4  2 8
Skill 8: Multiplying STEP 2: Find the interest rate per period.
Decimals, page 735 Annual Rate
Application C: Number of Periods per Year
Tables and Charts, 6%
page 762 4  1.5%
Continued on next page
S e c t i o n 5 - 8 Annuit ies 䊳 217
 STEP 3: Find the future value of $1.00 for 8 periods at 1.5 percent per
period using the Future Value of an Ordinary Annuity for $1.00 per
Period table on page 798.
 8.43284
STEP 4: Find the future value.
Amount of Deposit ⴛ Future Value of $1.00
$500  8.43284  $4,216.42 future value

CONCEPT CHECK

Complete the problems, then check your answers at the end of the chapter.
1. One thousand dollars is deposited into an ordinary annuity after each
6-month period for 2 years. The account pays 4 percent interest compounded
semiannually. What is the future value of the account in 2 years?
2. Five thousand dollars is deposited into an ordinary annuity after each
quarter for 3 years. The account pays 6 percent interest compounded
quarterly. What is the future value of the account in 3 years?

ANNUITY DUE Now that you know how to calculate an ordinary annuity, it’s
time to learn how to calculate the other kind of annuity—the annuity due. An
annuity due occurs when you have regular deposits at the beginning of the period.
In an annuity due, the money starts earning interest immediately since it is
deposited at the beginning of the interest period. The future value of an annuity
due is found by multiplying the future value of an ordinary annuity by $1.00 plus
the rate per period. It looks like this:
Future Value of Future Value of an
an Annuity Due ⴝ Ordinary Annuity ⴛ ($1.00 ⴙ Rate per Period)

Example 2
Suppose that Aiko Murakami (from Example 1) had made $500 deposits in an
annuity due at the beginning of each quarter in an account earning 6 percent
interest compounded quarterly. What is the future value of the account in 2 years?
STEP 1: You know from Example 1 that the future value of the ordinary
annuity is $4,216.42.
STEP 2: You also know that the rate per period is 1.5 percent.
 0.015
STEP 3: Use the calculation for future value of an annuity due.
Future Value of an Ordinary Annuity ⴛ ($1.00 ⴙ Rate per Period)
$4,216.42  (1.00
0.015)
 $4,216.42  1.015
 $4,279.67 future value of an annuity due

CONCEPT CHECK

Complete the problems, then check your answers at the end of the chapter.
3. See Self-Check Problem 1. Suppose $1,000 is deposited into an annuity
due at the beginning of each 6-month period for 2 years. The account pays
4 percent interest compounded semiannually. What is the future value of
the account in 2 years?

218 䊴 Chapter 5 Savings Accounts

 4. See Self-Check Problem 2. Suppose $5,000 is deposited into an annuity due at
the beginning of each quarter for 3 years. The account pays 6 percent interest
compounded quarterly. What is the future value of the account in 3 years?

SECTION 5-8 PRACTICE

Use the Future Value of an Ordinary Annuity for $1.00 per Period table on page
798 to solve Problems 5–15.

.00

y
nnuit
f
eriod

ue f
Ordin Value o

Annu e Value o
Depoof Period

of $1

per P ⴙ Rat e
ed

Perio ber of
ound

ar y A
per P

eriod

ity D
nt
sit

ds

$1.00
Amou
Comp

Futur

Fut ur
Years

Num
Rat e
Rat e
End
5. $5,000 quarterly 6% 2 a. b. c. d. e. f.
6. 800 semiannually 4% 6 a. b. c. d. e. f.
7. 2,000 annually 4% 10 a. b. c. d. e. f.
8. 1,000 monthly 6% 3 a. b. c. d. e. f.
9. 525 quarterly 8% 10 a. b. c. d. e. f.

10. Regina Aguirre deposits $2,000 into an ordinary annuity after each 6-month
period for 4 years. The account pays 6 percent interest compounded semi-
annually. What is the future value of the account in 4 years?
11. Vernon Taber deposits $600 into an ordinary annuity after each quarter for
4 years. The account pays 4 percent interest compounded quarterly. What is
the future value of the account in 4 years?
12. Rob Walthall deposits $4,000 in an annuity due at the beginning of each 6-
month period for 4 years. The account pays 6 percent interest compounded
semiannually. What is the future value of the account in 4 years?
13. Suppose Kimi Matsumoto deposits $2,000 at the beginning of each year into
an Individual Retirement Account at Boise Bank. The account pays 7 percent
compounded annually. How much will be in the account in 25 years?
14. Jane Martin-Smith and her husband deposited $500 in an account on their
wedding day and each subsequent anniversary. The money was deposited in
an account that pays 7 percent compounded annually. How much will they
have on their 25th anniversary?
15. Richard and Elaine McCormick would like to have $20,000 in 5 years to make
a down payment on a home. They decide to save $350 at the beginning of each
month for the next 4 years. The money is in an account that pays 6 percent
compounded monthly. How much will they need to save the fifth year?

MAINTAINING YOUR SKILLS

Multiply.
Skill 8: Multiplying 16. $2,000  1.05000 17. $8,000  1.45210 18. $6,250  2.01500
Decimals, page 735
19. $3,698  4.12161 20. $1,100  5.10101 21. $1,587  6.07550
22. $8,520  3.01502 23. $45,620  7.10588 24. $980  9.18212

S e c t i o n 5 - 8 Annuit ies 䊳 219

 5
CONCEPT CHECK (p. 196, 197)
1. ($160.00
$10.95
$114.35)  $25.00  $285.30  $25.00  $260.30
2. ($125.60
$180.00
$22.21)  $20.00  $327.81  $20.00  $307.81
3. $152.54
$147.46  $300.00; $54.00
(12  $5)
(6  $10)  $54

$60
$60  $174; (35  $0.25)
(18  $0.10)
(40  $0.05)
$0.75
 $8.75
$1.80
$2.00
$0.75  $13.30; $300
$174
$13.30 =
$487.30  $50  $437.30
CONCEPT CHECK (p. 199, 200)
00 50
1. Sixty and 100 dollars 2. Two hundred eighty and 100 dollars
3. $98.75 4. $6,586.95
5. a. January 10, 20-- b. 559821 c. yes d. Tyrone Shumpert

CONCEPT CHECK (p. 202, 203)

1. $979.75 2. $1,902.00
3. $700.00
$1.50
($100.00
$250.00)  ($80.00
$110.00) 
$701.50
$350.00  $190.00  $861.50
CONCEPT CHECK (p. 206)
3
1. $400  6%  12; $400 0.06  0.25  $6.00
6
2. $1,500  0.025  12 
$18.75
3. a. $1.97 b. $1.97 c. $1.03 d. $0.99 e. $5.96 f. $2,005.96
4. a. $18.98 b. $11,618.98

CONCEPT CHECK (p. 209)

1 1
1. $2,000  0.08  2  $80; $2,080  0.08  2  $83.20; $2,163.20
2. $2,163.20  $2,000  $163.20

CONCEPT CHECK (p. 212)

1. 1.11544  $2,000  $2,230.88 2. 1.06136  $4,500  $4,776.12
3. 1.05614  $2,000  $2,112.28; (2,112.28
4,000.00)  1.11544  $6,817.88

CONCEPT CHECK (p. 215)

1. a. 1.00377  $6,000  $6,022.62 b. $22.62
2. a. 1.00468  $6,000  $6,028.08 b. $28.08
3. 1.02131  $10,000  $10,213.10; $10,213.10  $10,000  $213.10

CONCEPT CHECK (p. 218, 219)

1. $1,000  4.12161  $4,121.61 2. $5,000  13.04121  $65,206.05
3. You know from Self-Check Problem 1 that the future value of the ordinary
annuity is $4,121.61. You also know that the rate per period is 2 percent 
0.02. Therefore, $4,121.61  ($1.00
0.02)  $4,121.61  1.02  $4,204.04
4. You know from Self-Check Problem 2 that the future value of the ordinary
annuity is $65,206.05. You also know that the rate per period is 1.5 percent
 0.015. Therefore, $65,206.05  ($1.00
0.015)  $65,206.05  1.015 
$66,184.14

220 䊴 Chapter 5 Savings Accounts

 5

Understanding the Williams Sisters

Assessment A savings account is a good way to ease into financial

independence. The golden rule is to put money aside each month
for unexpected expenses (such as your car breaking down) and
long-term goals, such as purchasing a car or taking a trip to Jamaica.
As your savings account balance grows, you should consider other
investments that can earn a potentially higher return. If inflation
increases at a higher rate than your savings account return, you can
lose purchasing power. Consider that a loaf of bread that cost $.50
twenty years ago now costs about $2.00, an increase of 400 percent.
Money you set aside for long-term goals, such as retirement, will need
to earn more than the rates usually paid on savings accounts to stay
ahead of the inflation and taxes.
Now that you’ve read about Aisha and Jaydene, answer these
questions as they pertain to your life.
Analyzing. Looking at your family’s financial situation, what
unexpected expenses has your family had? Name them. How did
your family react and deal with it?
Communicating. Long-term financial security starts with
saving. How does you family view saving, spending, and
borrowing money?
Predicting. When you strike out on your own, what will be your
personal financial strategy for saving money? Explain how your
experiences have shaped your outlook.

REVIEW OF KEY WORDS

Write your own definition for each of the terms below.
1. savings account (p. 196) 8. simple interest (p. 205)
2. deposit (p. 196) 9. compound interest (p. 208)
3. withdrawal (p. 199) 10. daily compounding (p. 214)
4. account statement (p. 202) 11. annuity (p. 217)
5. interest (p. 205) 12. ordinary annuity (p. 217)
6. principal (p. 205) 13. annuity due (p. 217)
7. annual interest rate (p. 205)

St udy Guide and Ass essme nt 䊳 221

 5

SECTION OBJECTIVE 5-1 AND EXAMPLES

Complete a savings account deposit slip, and compute the total deposit.
Fredie Enberg has 34 one-dollar bills in currency, $8.74 in coins, and a check
for $102.35 to deposit into his savings account. He wants to receive a ten-dollar
bill in cash. How much will he deposit?
STEP: Compute the total deposit.
(Currency ⴙ Coins ⴙ Checks) ⴚ Cash Received
($34.00
$8.74
$102.35)  $10.00  $135.09 total deposit
REVIEW EXERCISES
Find the subtotal and total deposit.
Deposits Subtotal Less Cash Received Total Deposit

14. $ 38.90 a. $ 0.00 b.

34.28
21.01
15. 93.44 a. 35.50 b.
12.58
102.66
16. 184.66 a. 50.98 b.
54.76
96.44
17. 13.49 a. 115.00 b.
122.34
77.45
18. 33.28 a. 15.50 b.
45.98
67.98
19. 101.95 a. 75.00 b.
10.29
75.65

Complete the deposit slip on a separate sheet of paper.

20. Hazel Bruot fills out the savings deposit form shown. What is her total deposit?

DEPOSITED FOR ACCOUNT OF DOLLARS CENTS

SAVINGS ACCOUNT DEPOSIT TICKET

Hazel Bruot CASH 31 17

LIST EACH SEPARATELY 92 12
77 13 BE SURE
Address 412 E. Broadway
CHECKS

EACH ITEM
26 41 IS PROPERLY
Milton, NC 22020 ENDORSED
Date October 11 , 20
FEDERAL SAVINGS
TRENTON HEIGHTS TOTAL
All items are received by this Bank for purposes of collection and all credits for items are provisional. Use REGISTERED MAIL when mailing cash or coupons.

222 䊴 Chapter 5 Savings Accounts

 5
SECTION OBJECTIVE 5-2 AND EXAMPLES

Fill out a savings account withdrawal slip.

Serita Escobar would like to withdraw $85.34 from her savings account. Her
account number is 00–170–14. Write (a) the account number, (b) the amount as
a numeral, and (c) the amount in words.
34
a. 00–170–14 b. $85.34 c. Eighty-five and 100 dollars
REVIEW EXERCISES
Write each amount in words as it would 24. Murphie Wohler has been saving to buy a
appear on a withdrawal slip. big-screen TV. The total purchase price is
21. $21.44 22. $396.00 $2,359.04. She fills out a withdrawal slip
For Problems 23–25, write (a) the account for the amount. Her savings account
number, (b) the amount as a numeral, and number is 8642–00–908.
(c) the amount in words. 25. Ruben LaChorrera loves baseball. He has
23. been saving to buy season tickets for the
Farmer’s Mercantile
Atlanta Braves. The total purchase price is
Date Savings Acct. No.
$985.40. He fills out a withdrawal slip for
11/8/20-- 06029175 $76.60
the amount. His savings account number
Pay to Myself or to Damone Bashier
is 045–8996.
Dollars
And Charge to the above Numbered Account
Sign Here Damone Bashier
Withdrawal

SECTION OBJECTIVE 5-3 AND EXAMPLES

Compute the new balance on a savings account statement.

Your savings account statement shows a previous balance of $543.92 and $1.23
in interest. You made deposits of $100, $50, and $300.86. You had withdrawals
of $35.46 and $128.44. What is your new balance?
STEP: Compute the new balance.
Previous Balance ⴙ Interest ⴙ Deposits ⴚ Withdrawals
$543.92
$1.23
($100
$50
$300.86)  ($35.46
$128.44)  $832.11
REVIEW EXERCISES
26. Previous balance, $650.25; interest, $4.02; deposits of $123.42 and $50.66 and
deposit, $125.44; withdrawal, $50. What is withdrawals of $323.09. What is his
the new balance? new balance?
27. Previous balance, $2,349.95; interest, 29. Tasi Sun’s savings account statement showed
$21.34; deposit, $125.00; withdrawal, a previous balance of $21,395.65 and interest
$409.86. What is the new balance? of $14.39. The statement also showed
28. Sergio Santiago’s savings account statement deposits of $498.88 and $98.10 and
showed a previous balance of $234.95 and withdrawals of $8,498.23. What is her
interest of $1.06. The statement also showed new balance?

St udy Guide and Ass essme nt 䊳 223

 5
SECTION OBJECTIVE 5-4 AND EXAMPLES

Calculate simple interest.

Your principal is $800. The annual rate of interest is 5 12 percent. What is the
interest after 6 months?
STEP: Find the interest at 5 12 percent.
Principal ⴛ Rate ⴛ Time
$800.00  5 12 %  6
12
$800.00  0.055  0.5  $22.00 in interest
REVIEW EXERCISES
Principal Rate Time Interest

30. $328.00 5% 3 months

31. 635.85 7% 6 months

32. 175.00 8% 9 months

1
33. Craig Deloy’s bank computes 4 4 percent interest on a daily basis. He had
$1,250 in the account for 20 days. He makes a deposit of $450 and it is in
the account for 10 days. He withdraws $300 and the balance earns interest for
8 days. How much interest does he earn? What is the amount in the account
at the end of the month?

SECTION OBJECTIVE 5-5 AND EXAMPLES

Figure out the compound interest and the amount.

Pat Villone deposited $3,000 into a savings account that earns 4 percent
interest compounded quarterly. She made no deposits or withdrawals. What
was the amount in the account at the end of the second quarter?
STEP: Find the amount for each quarter.
1st quarter Principal ⴛ Rate ⴛ Time ⴝ Interest
$3,000.00  4%  14  $30.00
Principal ⴙ Interest ⴝ Amount
$3,000.00
$30.00  $3,030.00
2nd quarter $3,030.00  4%  14  $30.30
Principal ⴙ Interest ⴝ Amount
$3,030.00
$30.30  $3,060.30 amount at end of second quarter

224 䊴 Chapter 5 Savings Accounts

 5
REVIEW EXERCISES
34. Dak Nardo deposited $350 into a new regular savings account that earns
6.5 percent interest compounded semiannually. He made no other deposits
or withdrawals. What was his amount in the account at the end of 1 year?
Annual First Second
Interest
Principal Interest Period Amount Period Amount
Period
Rate Interest Interest

35. $1,200.00 6.0% quarterly a. b. c. d.

36. 3,500.00 5.5% monthly a. b. c. d.

1
37. 965.00 3–%
4 quarterly a. b. c. d.

SECTION OBJECTIVE 5-6 AND EXAMPLES

Find compound interest using tables.

First Central Bank pays 6 percent interest compounded quarterly on a regular
savings accounts. Shawn Green deposited $6,500 for 3 years. He made no other
deposits or withdrawals. How much interest did he earn during the 3 years?
STEP 1: Find the total interest periods.
Periods per Year ⴛ Number of Years
4 quarters per year  3 years  12 total interest periods
STEP 2: Find the interest rate per period.
Annual Rate
Number of Periods per Year
6%
4  1.5%
STEP 3: Find the amount of $1.00 for 8 periods at 1.5 percent per period using
the Compound Interest—Amount of $1.00 table on page 797.
 1.12649
STEP 4: Find the amount.
Original Principal ⴛ Amount of $1.00
$6,500  1.19562  $7,771.53
STEP 5: Find the compound interest.
Amount ⴚ Original Principal
$7,771.53  $6,500  $1,271.53 compound interest

Continued on next page

St udy Guide and Ass essme nt 䊳 225

 5
REVIEW EXERCISES
Use Compound Interest—Amount of $1.00 table on page 797 to solve. Round
answers to the nearest cent.
38. Kathy Cole deposited $875 in a savings plan with her employer’s credit
union. The credit union savings plan pays 5 12 percent interest compounded
semiannually. If she makes no other deposits or withdrawals, how much
interest will her money earn in 2 years?
Annual Interest Total Compound
Principal Interest Periods Amount
Time Interest
Rate per Year

39. $1,200.00 6.0% semiannually 1 year a. b.

40. 750.00 5.5% quarterly 3 years a. b.
41. 1,230.00 5.0% quarterly 2 years a. b.

SECTION OBJECTIVE 5-7 AND EXAMPLES

Find interest for daily compounding.

Imagine you deposit $4,500 into an account that pays 5.5 percent interest
compounded daily. How much interest will you earn in 30 days? (Note: Use the
Amount of $1.00 at 5.5 Percent Compounded Daily (365-Day Year) table on page 796.)
STEP 1: Find the amount of $1.00 using the Amount of $1.00 at 5.5 Percent
Compounded Daily (365-Day Year) table on page 796 for 30 days.
 1.00452
STEP 2: Find the amount.
Original Principal ⴛ Amount of $1.00
$4,500  1.00452  $4,520.34
STEP 3: Find the compound interest.
Amount ⴚ Original Principal
$4,520.34  $4,500  $20.34
REVIEW EXERCISES
Use the Amount of $1.00 at 5.5 Percent Compounded Daily (365-Day Year)
table on page 796 to solve. Round answers to the nearest cent.
Number Compound
Principal Amount
of Days Interest

42. $120,000 30 a. b.
43. 8,500 40 a. b.
44. 1,730 60 a. b.

45. On June 30 Ed Klempel deposited $1,500 into a savings account that pays
5.5 percent interest compounded daily. On August 1 how much interest had
been earned on the principal in his account?

226 䊴 Chapter 5 Savings Accounts

 5
SECTION OBJECTIVE 5-8 AND EXAMPLES

Compute the future value of an ordinary annuity and an annuity due.

Suppose you deposited $750 into an ordinary annuity at the end of each
quarter in an account earning 6 percent interest compounded quarterly. What
is the future value of the account in 3 years? Suppose it had been an annuity
due instead. What would be the future value of the account in 3 years?
STEP 1: Find the total number of periods.
Periods per Year ⴛ Number of Years
4  3  12
STEP 2: Find the interest rate per period.
Annual Rate
Number of Periods per Year
6%
4  1.5%
STEP 3: Find the future value of $1.00 for 12 periods at 1.5 percent from the Future
Value of an Ordinary Annuity for $1.00 per Period table on page 798.
 $13.04121
STEP 4: Find the future value.
Amount of Deposit ⴛ Future Value of $1.00
$750  $13.04121  $9,780.91
(Note: This is the rounded number of $9,780.908.)
STEP 5: Find the future value of an annuity due.
$9,780.91  ($1.00
0.015)
$9,780.91  1.015  $9,927.62 future value of an annuity due
(Note: This is the rounded number of $9,927.624.)
REVIEW EXERCISES
46. Walton Clark deposited $1,750 into an ordinary annuity at the end of each
quarter in an account earning 8 percent interest compounded quarterly.
What is the future value of the account in 3 years?
Use the Future Value of an Ordinary Annuity for $1.00 per Period table on page
798 to solve the following.
End of Rate Number Amount Future Value
Period Compounded Rate Years per of of of Ordinary
Deposit Period Periods $1.00 Annuity

47. $3,000 quarterly 4% 2 a. b. c. d.

48. 900 semiannually 4% 4 a. b. c. d.
49. 2,500 quarterly 8% 3 a. b. c. d.

50. Elmer Pasture deposits $2,000 at the end of each year into an Individual
Retirement Account at Boise Bank. The account pays 7 percent compounded
annually. How much will be in the account in 25 years?

St udy Guide and Ass essme nt 䊳 227

 A Cool Savings Strategy
You may not realize it, but glaciers have a lot in common with your approach
to saving money. Both you and a glacier transport, erode, and deposit. Both
try to move ahead. And both can dwindle if not enough is added to them.
The marketing director of a new savings and loan company in Alaska has
asked your advertising firm to put together a marketing campaign to draw
new customers. You have decided to use an advertising theme that draws
on Alaska’s natural beauty.

Purpose
Alaska is a land of many glaciers, including the renowned Mendenhall Glacier,
a favorite tourist spot near the state’s capital, Juneau. You will develop an ad
campaign for Mendenhall Savings & Loan that uses the famous glacier as a
metaphor for a typical savings account owner.

Supplies Needed and convincing to consumers. You’ll need

to create a catchy, memorable slogan (for
• Pen, paper example, Nike’s “Just Do It”; Chevrolet
• Colored pencils, markers trucks’ “Like a Rock”).
• Poster board
• Computer Step 2: Even if you don’t own a savings
account, you probably understand how
one works. Before you begin designing
Your Activity your ad campaign, however, you also
Step 1: You’ll be preparing a “pitch” will need to understand something
for the executives of Mendenhall Savings about glaciers.
& Loan to persuade them that your ad Think about areas of high elevation
campaign will encourage more customers such as the tops of high mountains (or
to invest in savings accounts in their high latitude like the land near the Arctic
bank. The materials you prepare must Circle, where snow that falls during the
persuade the savings and loan company winter never completely melts even in the
(your client) that your ad theme and summer). Eventually, a large snowfield
visual presentation will be successful in develops, and as the years pass, this thick
bringing them more business. In other layer may turn into a glacier. Glaciers
words, your presentation needs to exhibit the following characteristics:
persuade your clients that you can
• They are large and permanent.
persuade their customers!
• They move.
Successful advertising executives know
• They consist of thick layers of ice
how to develop campaigns that are
with snow on top.
appropriate for their clients and attractive

228 䊴 Chapter 5 Savings Accounts

 Glaciers are powerful, natural forces. • explain why the glacier theme has
Like natural bulldozers, glaciers erode (or been chosen,
withdraw) tons of material from the land • show why you think it will influence
as they move. They later deposit this customers, and
material—much of it huge boulders. • offer several examples of how it can
When the glacier melts, these deposits be used verbally and visually.
remain behind as large hills, or moraines.
Now that you know something about Step 4: Use a visual aid to present
glaciers, try to create an ad campaign how a magazine or television ad might
using at least one of the features of convey your client’s message. Consider
glaciers as a metaphor (a symbol) for a developing a logo (such as the Nike
savings account owner. You probably “swoosh,” which is one of the most
won’t want to include all the features of widely recognized and effective logos
glaciers, but, rather, focus on one. For ever created). In addition, prepare
instance, glaciers deposit boulders that a mockup of a magazine ad that
grow into moraines; people deposit incorporates the slogan, the logo,
money into savings accounts that grow photographs, and other graphics,
through interest. as well as some words.
Stretch your imagination and try to find Step 5: Break into small groups and
interesting parallels between the actions present your proposed ad campaign. Use
of glaciers and the actions of savings the written material, a poster, and your
account depositors. oral powers of persuasion to convince
Step 3: Create a description of how the Mendenhall Savings & Loan’s clients that
theme will be used in words and graphics. your ad campaign will be so eye-catching
This should require at least several and memorable that it will bring in new
paragraphs. The description should: customers.

You’ve just compared math to glaciers. How did this

Math Studio allow you to understand math in a
different way other than working out problems and
performing calculations?

Math St udio A Co ol Sav ing s St rate g y 䊳 229